Shared Ownership Universal Life Insurance
Shared Ownership is an approach whereby a business owner enters into a legal agreement with his/her company to share the rights of ownership of a Universal Life (UL) contract.
A UL policy traditionally contains two assets:
1) the “Face Amount” (the amount of insurance on the life of
the business owner; and
2) the “Fund Value”, generated by making deposits in excess
of the premium cost of the face amount.
Under a Shared Ownership Agreement, the UL contract is owned jointly by the company and the business owner; with each party owning one of the assets within the contract. The company will own the Face Amount (and be the beneficiary on death), and the business owner will own the Fund Value (with the right to name a preferred beneficiary for that amount on death).
This type of arrangement typically is very favorable for the business owner as the company usually ends up paying a large portion of the insurance premium and additional deposit (from after tax corporate retained earnings). The fund value created by these deposits will be paid to a preferred beneficiary (not the company) tax free on the death of the business owner. Furthermore, when the business owner reaches retirement age, he/she can access the fund value through a leveraging arrangement and create tax free retirement income.
A shared ownership arrangement should not be entered into without proper financial and legal advice. A thorough financial analysis should first be conducted to determine whether a business owner is a suitable candidate for a successful application of this concept. If properly set up, a shared ownership arrangement can allow the business owner to put corporate after tax earnings for use towards a long term corporate and personal financial security program and save a significant amount of tax in comparison to paying out dividends immediately.
(The above information is subject to errors and omissions.)
